Question

Explain how central banks and other policymakers responded to the global financial crisis. What were the intended results of central bank policies? How were they supposed to work?

Answer 1

Generally the Central Bank uses the expansionary monetary policy to solve or curb the financial crises.

By using Expansionary Monetary Policy the central bank influence Demand and supply of the money. In Expansionary Monetary Policy central bank either reduces the interest rate or increase the money sometimes do both. When central bank reduces the interest rate the Demand for money increases because credit/loan are become cheaper, hence the individual investment and consumption increases which helps to curb/control the financial crises.

Similarly when central bank increases the money supply due to which the Money supply increases in the economy it helps to increase the individual investment and consumption because there is more money in the hands of the people.